Coupon Tax Isn't Just Unfair, It's Unworkable

February 28, 2011|By Dan Haar

If we didn't know it already, we're all realizing in this budget shortfall thing that there's no such thing as a fair tax increase. Every time a levy goes up, somebody somewhere is paying more than before, and someone else gets a free ride.

Unfair is the new fair if it's spread around, as Gov. Dannel P. Malloy keeps saying, and he's right. But his idea to tax the "full" value of purchases when the customer uses a coupon — not just the final sale amount — is nutty.

The coupon tax flies in the face of basic commerce. It's not just voodoo economics, it's imaginary economics. And it's totally unworkable.

Rule No. 1 of business, taught to every 10-year-old at the knee of his parents, older siblings, aunts and uncles: The real price of the item you're buying is the price you pay. There is no other price. There's no such thing as a special deal.

And there's no way to levy a tax on a price the buyer never would have paid. The problem is not that it's unfair — it's downright impossible. There are too many offers out there in too many forms, too many twists and turns.

The Jos. A. Bank website listed suits Monday for $169, regularly $550 – "3 Days Only." Is that a coupon? Should the buyer pay a $24 sales tax on the difference? No, said Ben Barnes, Malloy's budget chief, because it's offered to everyone who goes into the store.

But lots of stores offer their cut-out coupon discounts to everyone. And the ad does use dotted lines. In reality, it's not a $550 suit — never was, never will be. If the store ever charges it, it'll throw in a suit or two extra, no charge.

What about employee discounts? What about cut rates for loyal customers? Or online discounts? Or matching competitors' discounts? Or mail-in rebates, or automatic rebates like the ones we see for cameras, where no one pays full price?

I don't know, and neither does Malloy.

Suppose Malloy says the deal is a coupon discount if the store requires the customer to bring it in. Then no one will bring in the coupon and if you mention the coupon, you'll get the lower rate and the lower tax. Those who do bring in coupons will pay a higher tax for absolutely no fair reason.

I called the Hartford location of Pizza Time, which has a coupon out on the streets this week for two large cheese pizzas for $15.99. I asked the guy how much two large cheese pizzas would cost. He asked, pick-up or delivery? Then he took a couple of minutes and got back with an answer: $23.30.

Malloy would say we need to tax that extra $7.31, for 46 cents more revenue to the state. But at the full price, as it turns out, Pizza Time throws in two free liters of soda. And what if it comes with free delivery?

What's the taxable value of that soda and that delivery?

Barnes says the administration will provide clear answers to all these questions, some of which he raised himself.

Attention shoppers: There are no clear answers when it comes to coupons in the Internet Age, other than Rule No. 1 — the real price of an item is the price you pay. Let merchants set discounts how they want, when they want, and let the state levy a tax on the actual prices that customers pay.

Malloy's administration says the tax would raise $92 million over two years. "It's another piece of the tax package. It hurts," Barnes said, adding that consumers already make mind-checks all day long, and this, like any tax, will lead to small adjustments.

No, it's more than that. This idea, from a smart bunch of folks, attempts to repeal the basic rules of commerce.

Full disclosure: The Courant owns ValuMail, the outfit that mails out store coupons by the thousands. So the coupon bill could hurt my employer if stores stopped using coupons, and instead lowered their prices to begin with.

But again, the issue here isn't tax fairness. It's workability. I could argue that higher sales taxes make less sense than higher state income taxes, because you can deduct state income taxes on your federal income tax returns, so the state would end up with more money for the same tax increase. UConn economist Fred V. Carstensen has been pushing this idea for years, and he's right — for another day.

Barnes, who said he uses coupons, and Malloy, the veteran grocery shopper who probably uses them, should come up with tax increases that are logical, if a bit unfair — not ones that will bring chaos to a population that lives by that other great rule of capitalism, "Never pay retail."